WASHINGTON — A recent study from the Urban Institute commissioned by the American Heart Association (A.H.A.) recommends taxes based on the level of sugar content may be most effective in reducing sugar consumption from sodas, while beverage taxes based on volume are more efficient in raising tax revenue.
“If policymakers are proposing taxes on sweetened beverages to discourage sugar consumption, they should give close consideration to basing those taxes on sugar content, which is feasible and legal in many jurisdictions,” “The Pros and Cons of Taxing Sweetened Beverages Based on Sugar Content” report concluded. “If, however, their primary goal is revenue collection, taxes on drink volume or sales value might be preferred because of their efficiency.”
Nancy Brown, chief executive officer of the A.H.A., added, “This report provides new insights for elected officials to consider in their efforts to decrease the health harms of sugary drinks. A key finding demonstrates that taxing sugary drinks based on sugar content may be an effective approach to achieve better health and expand healthier options.”
Ms. Brown said that while the A.H.A. believes a tiered tax could be an effective tool, the organization would continue to help localities across the country in their efforts to tax sugar drinks based on either sugar content or volume.
The American Beverage Association, numerous other groups and beverage manufacturers have vehemently opposed taxes on caloric sweetened drinks (using either sugar or high-fructose corn syrup) based in part on studies that show singling out a single ingredient is not effective and has not been proven to improve public health, suggesting instead a comprehensive diet approach. Meanwhile, most if not all beverage companies, as well as other food manufacturers, have voluntarily been working to reduce caloric content across their product lines.
The A.H.A. has said it supports taxes on sugary drinks, and the study examined several models comparing taxes based on sugar content to those based on volume. The study used a simple model of consumer purchases of soft drinks to explore how different tax designs affect the amount of beverages purchased, the amount of sugar consumed from those beverages, revenue collection and economic burden on consumers. It grouped soft drinks into six categories: zero-calorie, regular soda, energy drinks and noncarbonated sweetened beverages with high, medium and low sugar content.
“Our analysis applies equally to taxes on added sugar, which will become more feasible once nutrition labels are updated in 2018 and 2019,” the authors of the study said. “Figuring out appropriate sweetened drink taxes can build on federal requirements for nutritional labeling. Today, that includes labels reporting sugar content and calories; added sugars will be separately reported for major brands by mid-2018 and smaller brands by mid-2019. This federally required information means that local governments can use sugar content to both determine which products will be covered by a tax and, if desired, to calibrate taxes to sugar content.”
The study said taxing the sugar content of beverages would be more effective in reducing sugar consumption than taxing drinks based on volume or value, which “do not reflect the wide variation in sugar content among sweetened beverages.” Taxing drinks with relatively high sugar content would be most effective in reducing sugar consumption with the least economic burden on consumers with lower income levels, it continued, while a sales tax on both sweetened and diet beverages would be most efficient in raising revenue without focusing on reducing sugar consumption.
“The federal government has both the authority and the capability to tax soft drinks based on their sugar content,” the report said, noting current federal taxes on spirits based on alcohol content as well as on different groups of products such as spirits, wine and beer.
A federal tax would be collected from drink manufacturers and importers, similar to an excise tax.
“With a volume tax, businesses have some incentive to design and market smaller packages,” the report said. “With a tax linked to sugar content, however, they also have an incentive to reduce sugar content or to shift their marketing and promotion efforts to low sugar alternatives. Such a tax would be a meaningful incentive to reformulate products. Unfortunately, little systematic evidence exists on such responses.”
Ms. Brown said the report could give the industry incentive to manufacture healthier choices and encourage businesses to sell them.
While constitutional issues involving due process or equal protection may arise at the federal level because of singling out sweetened drinks over other beverages, such taxes faced even more issues at the state and local levels as challenges of levying an excise tax grows as the taxing jurisdiction gets smaller. Other issues include the authority to tax and uniformity of taxable classes at state and local levels, the study said.
“A tax on sugar content may be on stronger legal ground than a tax on volume for sweetened drinks,” the study said. “Basing a tax on the amount of an ingredient in a beverage does not create separate classes if there are no exceptions, whereas taxing based on natural versus added sugars creates beverage classes, as do tiered tax levels.”
The World Health Organization in October recommended that taxes on caloric-sweetened beverages that raise the retail price by at least 20% would result in proportional reductions in consumption.
Hungary already has a single tiered tax of 2c per liter if drinks contain more than the equivalent of 19 grams of sugar per 8-oz serving. South Africa has proposed a sugar content tax equal to about 1/10th of a cent per gram of added sugar. The United Kingdom in April 2018 plans to institute a two-tiered tax of 0.75c per oz for each 8-oz serving with at least 12 grams of sugar and 1c per oz on drinks with 19 grams of sugar. Mexico also has a tax on certain beverages and foods, but the focus was arguably on raising tax revenue rather than health concerns. Belgium, France and the Scandinavian countries also have some form of tax on sugary beverages.Four U.S. cities, San Francisco, Oakland and Albany, Calif., and Boulder, Colo., passed beverage taxes in November, joining Berkeley, Calif., which passed a tax in 2014, and the Navajo Nation. The Board of Cook County, Ill., and the City Council of Philadelphia both approved beverage taxes earlier this year to become effective in 2017 that are aimed at raising tax revenue. The Philadelphia tax already has been challenged in court, and the Cook County tax may still see challenges because the city of Chicago already has a tax on the gross receipts of soft drink vendors. Several other municipalities are considering soda taxes, the report said.